Why do franchises expect such high unencumbered capital?

One of the effects of the global recession is that franchisors have hiked up their unencumbered capital requirements.

Typically, franchisors now require between 40% and 60% liquid capital from their prospective franchisees before seeking finance. This is for two reasons: The first is that it shows your commitment to the brand, also known as skin in the game.

The more of your own personal money you put in the business, the more invested you are in making it work. The second reason is a matter of gearing. The business world is tough, and franchisors require a high percentage of unencumbered capital so that you’re not financed to the eye-balls and have no breathing room when times are tight because of high repayment obligations.

Franchise Zone
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Franchise Zone is published by Entrepreneur Media SA. It offers advice and franchising opportunities in South Africa.

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